Buying Property From An NRI? Take Note

If buying a property is difficult owing to the legal and financial aspects of the transaction, buying a property from a non-resident Indian (NRI) is even more complex. Since rules in such cases are different, buyers must be really careful while carrying out such deals.

Let us look at the key points you must keep in mind while you go home shopping.

While residents of most countries can sell property to Indians without having to knock at the doors of the Reserve Bank of India, NRI sellers from Afghanistan, Bhutan, China, Pakistan, Nepal and Sri Lanka must have an approval from the central bank to sell their property. Also note here that an approval from the RBI is must irrespective of the country where the NRI lives in case you are buying agricultural land. Make sure all the approvals are in place.

While having a Permanent Account Number (PAN) is a must for the seller to carry out the transaction, the buyer needs to have a Tax Deduction and Collection Account Number (TAN). Without a TAN, you will not be able to deduct the tax – tax deducted at source or TDS – you as a buyer are liable to pay. Both the parties could apply for the same if they do not have the above-mentioned numbers already. Also note here that if you are buying this property along with your wife, both the buyers must have TANs. If the seller is more than one person, all of them, too, need to pave PANs.

In case the seller shows his inability to be present in India to complete the process and proposes to grant a power of attorney to his representative in the country, ask him to prove this representative with a special power of attorney. A general power of attorney is given to someone to carry out any sort of financial transaction on an NRI’s behalf. A special power of attorney would in a way restrict this representative’s powers, something that favours a buyer.

Depending on the deal value, you will have to deduct over 20 per cent of the transaction value of the deal as TDS.

*Deduct TDS of 20.80 per cent if the deal value is less than Rs 50 lakh.

*Deduct TDS of 22.88 per cent of the deal value if the property is worth anywhere between Rs 50 lakh and Rs 1 crore.

*Deduct 23.92 per cent of the deal value as TDS if the property is worth over Rs 1 crore.

Do note here that you are basically deducting tax on the capital gains made by the seller. However, it is the total deal value based on which you should deduct the money. Unless the seller presents a certificate issued by an income tax officer establishing lower tax liability, go ahead with the standard practice.

The TDS money has to be deposited with the income tax department within seven days after the month in which the transaction takes place. You are also responsible for filing TDS return and issue Form 16A to the seller after depositing the amount with the authorities.

It is of utmost importance to note here that any lapses in the transaction would mean authorities running after you since tracking the seller might not be convenient. Taxation laws are complex and you may not be able to understand the overlapping aspects of transaction. It is in your best interest to use the services of a lawyer/chartered accountant who specialises in such transactions.

Make sure you deposit the sale proceeds only in the seller’sNon-Resident External (NRE) or a Non-Resident Ordinary (NRO) or Foreign Currency Non-Repatriable (FCNR) account. Never commit to depositing the money in the seller’s savings account in India. This is important to avoid future hassles.

In case the property you are buying has multiple owners, make sure all parties are on board and are willing to sell it. To avoid any litigation in future, also pay each party in proportion to their share in the property.

The sale agreement must be written elaborating on all points, including TDS details and seller account number. This would ensure no misinforming is done on part of the NRI.

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